6/19/2009 @ 4:00PM

Univision Branches Out With Bonds

Consider it a test of the bond market’s appetite. The broadcaster Univision Communications, bought by five private-equity firms in 2007, recently announced plans to sell bonds. Univision’s bonds sport a CCC-rating from Standard & Poor’s, near the bottom of the credit scale, and it carries $10 billion in debt — a whopping 12 times earnings.

And like other media companies, it’s struggling: Univision’s first-quarter interest expenses reportedly surpassed operating income. In March, the company even stopped paying interest to holders of certain bonds and handed them more IOUs instead. (See “Paying Debts With Debt.”)

The corporate credit rally has lifted the prices on some of the lowest-rated and riskiest junk bonds, an encouraging sign to Univision and others with towering leverage ratios. It’s also prompted some in the bond market to wonder if investors have become too indiscriminate. The KDP Investment Advisors High-Yield Index is up 22.9% this year and 1.4% in June.

Investors seem unafraid of newly issued junk bonds. Speculative-grade borrowers sold $3.5 billion in the past week, up from $1.9 billion the previous week, according to Bloomberg. Among those issuing bonds: cable company
Comcast
with $700 million at 5.7%, retailer
Limited Brands
with $500 million at 8.5% and fast-food chain Wendy’s/Arby’s Group with $565 million at 10%.

If Univision completes the bond sale, the cash will be used to pay off $500 million in 7.85% notes that mature in 2011, so the company may stretch its maturities and wind up with the same debt load.

It’s widely expected that the debt used to finance leveraged buyouts will drive many private equity-owned companies into bankruptcy this year. Even so, some leverage-buyout debt looks surprisingly strong. Take the hospital chain HCA, which is shouldering $26 billion in debt, six times its earnings; HCA’s 9.25% notes due in 2016 are trading at 99 cents on the dollar. Or SunGuard, the software services company bought by a consortium of private-equity firms in 2005, whose 9.125% notes due in 2013 trade at 96 cents on the dollar.

Defaults, however, continue to pile up. Another five U.S. companies defaulted in the past week, of which only Eddie Bauer filed for bankruptcy, according to S&P.